Alex Abrahams and Alison Hughes, the two suburban dentists who founded Pacific Smiles in 2003, certainly had reason to grin on Friday. The company's market value climbed 35 per cent on its stock exchange debut, delivering the co-founders a payday worth almost $100 million on paper.
At midday, the offer which was priced at $1.30 per share started trading at $1.70. Two hours later, the stock was fetching $1.75, a 35 per cent premium to the offer price, giving the company a market capitalisation of almost $267 million. The shares closed at $1.78.
The first-day trading price values the roughly 26 per cent of the company controlled by Mr Abrahams and his family, and the roughly 10 per cent owned by Ms Hughes and her spouse, combined at around $98.8 million.
But at an age when many of his colleagues are considering retirement, Mr Abrahams plans to continue practising dentistry 20 hours a week, in addition to fulfilling his executive duties within the group. Ms Hughes works in a full-time executive role.
Institutional investors flocked to the initial public offering from the family-style business that has a decade-long track record of organic growth and big plans for future expansion.
"We have three new centres opening in December – in Tuggeranong, Toronto and Blacktown – and are confident of rolling out at least another three before June," Mr Abrahams said.
Pacific Smiles is currently a contracted service facility provider to 42 dental clinics across Australia's east coast, operating more than 200 dentist's chairs.
The group plans to add six to 10 new sites each year with a target of 80 clinics within five years and a long range goal of 150 sites.
Focussing on patient care
Dentists employ the company to manage all aspects of running their practice, other than looking inside people's mouths. Pacific Smiles does not own any property but controls leases. The group employs all support staff in the practices, including dental nurses and receptionists.
"The dentists like to work with us because it means they don't have to worry about the administrative side of running their business and can concentrate on patient care," Pacific Smiles managing director John Gibbs said.
"Working collaboratively on advertising, marketing, and partnerships with private health insurers helps ensure a good flow of patients walking though the door".
For the financial year ended June 30, the company made $15.1 million in earnings before interest, tax, depreciation and amortisation from $95.9 million in billings.
Dividend yield
The group has forecast a final dividend yield for the 2015 financial year of 3.8 per cent and is targeting an annualised dividend yield of 6.4 per cent.
CBA acted as lead broker on the deal, which raised $45 million, with Bell Potter assisting on the retail offer. About three quarters of the subscription was taken up by institutional investors.
"Fund managers were impressed by the history of very structured and staged organic growth," CBA executive manager corporate finance Steve Manning said.
Pacific Smiles acquired a few sites following a cash injection from Sydney-based fund manager TDM Asset Management, which paid $13 million for a 20 per cent stake in July 2012. TDM Asset Management has retained a 16.6 per cent holding post the float, and its shares are under escrow until after the release of the 2015 financial year results.
The company has said it will consider future strategic acquisitions but is more focused on identifying new greenfield sites in sub-regional shopping centres.
"Strategic acquisition opportunities will be considered but that's not the main game. We have a roll-out rather than a roll-up business model," Mr Gibbs said.
Preferred provider
Pacific Smiles has preferred-provider agreements in place with a range of health insurers, representing 75 per cent of the industry, and strategic tie-ups with Medibank and nib.
The group operates nib's seven dental centres in NSW and Victoria. The health insurer used the IPO to exit an investment it had made in Pacific Smiles more than five years ago, selling a parcel of shares worth $6.9 million through the institutional bookbuild.
Most of the money raised through the IPO will be used to repay the group's $9.6 million bank loan and cash out some minority shareholders. At listing the company has a net cash position of $11.3 million.
Pacific Smiles is chaired by Centennial Coal chief executive Bob Cameron. Other non-executive directors include long-time Domino's Pizza Enterprises director and investor Grant Bourke, Lawler Corporate Finance director Simon Rutherford, and Ben Gisz representing TDM Asset Management.
Mr Gibbs has been managing director since 2004. Jane Coleman, a former PwC accountant, was recruited from nib in 2008 to the role of chief financial officer.
